Eli5: How does the chip in credit/debit cards provide an extra layer of security?

Question

More and more card readers at POS terminals now support tap to pay means of making a payment. If we are not inserting the chip end of the card, how is it providing additional security?

Edit: wow, lots of great information, thank you folks for taking the time and explaining it like I’m 5.

In: 197

Answer 1

That is true when using contactless/tap to pay. If you insert the card it’s a physical power connection, similar to a USB plug – both power and data are sent through the little gold chip connection.